Puerto Rico to move away from bankruptcy following debt adjustment plan approval
Puerto Rico has received the long-awaited approval of the Debt Adjustment Plan, after years of uncertainty regarding Puerto Rico’s financial situation and bankruptcy crisis. Judge Laura Taylor Swain of the US District Court approved the debt adjustment plan on January 18, 2022, providing relief to the US island territory after more than five years of uncertainty and turmoil.
The news comes after Puerto Rico’s former governor, Alejandro García Padilla (PDP, D), officially declared the territory’s bankruptcy in 2015. In total, Puerto Rico’s debt equaled more than $33 billion by the time they announced bankruptcy; with pension obligations, their debt skyrocketed to close to $120 billion. The closest US territory, state, or city in debt size, Detroit, Michigan, with nearly $20 billion in debt, did not even come close to Puerto Ricos’. The debt adjustment plan aims to reduce the current debt by 80%, with more than $50 billion in debt payments saved.
After Puerto Rico declared bankruptcy, Congress produced the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), which was signed into law by former president, Barack Obama. The law aimed to produce an objective for debt re-establishment, create a board of supervision, and assemble an accelerated method for passing critical infrastructure proposals.
But how has Puerto Rico’s debt gone this far? The territory’s debt was issued by local government entities, as well as public corporations. Puerto Rico was in a constant cycle of corruption, poverty, and financial mismanagement. The destructive natural disasters hitting the territory haven’t helped their financial and economical problems either: hurricanes, earthquakes, and landslides have only added to the bankruptcy crisis. Now, with the debt adjustment plan in place, Puerto Ricans hope for an end to their economic crisis.
Puerto Rican citizens have suffered from the financial situation: more than 40% of Puerto Rican residents live in poverty. Since the filing of bankruptcy in 2015, the effect on Puerto Rico’s inhabitants through the economy has been significant: residents, businesses, and manufacturing have all experienced poor outcomes. Residents of the US territory experienced reduced funding for schools, and hospitals, and increased taxes. Additionally, after the catastrophic Hurricane Maria hit Puerto Rico in September of 2017, the local government had no financial assets to rebuild the US territory, which hurt the electrical power grid of Puerto Rico. In response to the hurricane, the territory saw massive power outages due to a lack of maintenance and neglect of power plants in the prior years.
Since declaring bankruptcy in 2015, the US island territory has desired a brighter financial future. With the Debt Adjustment Plan, approved by Judge Laura Taylor Swain of the US District Court, Puerto Rico looks towards ending its substantial debt in 2022.